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China stands pat on benchmark rate, signals brief pause in easing efforts

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    Reuters

Shanghai, China   /   Wed, May 20, 2020   /   10:38 am
China stands pat on benchmark rate, signals brief pause in easing efforts People wearing face masks walk inside a subway station during morning rush hour, following an outbreak of the COVID-19, in Beijing, China May 11. China held its benchmark lending rate steady on Wednesday, though analysts believe the widely expected decision signals just a brief pause in the central bank’s efforts to support an economy ravaged by the coronavirus pandemic. (Reuters/Carlos Garcia Rawlins)

China held its benchmark lending rate steady on Wednesday, though analysts believe the widely expected decision signals just a brief pause in the central bank’s efforts to support an economy ravaged by the coronavirus pandemic.

The one-year loan prime rate (LPR) remained at 3.85 percent from last month’s fixing, while the five-year LPR was also kept at 4.65 percent.

A Reuters survey of traders and analysts showed more than 70 percent of them expected China would stand pat on the benchmark lending rate in May.

Markets usually take the People’s Bank of China’s (PBOC) stance on its medium-term lending facility (MLF) rate - which serves as a guide for the LPR - as an indicator for any adjustment to the lending benchmark.

The PBOC surprised markets last Friday by keeping the interest rate on MLF loans steady, even as authorities have stepped up the pace of monetary easing recently to combat the worst economic slowdown in decades.

Jacqueline Rong, senior China economist at BNP Paribas in Beijing, said the steady LPR does not mean the PBOC won’t deliver additional rate cuts or reduce banks’ reserve requirement ratio (RRR) in June.

“Objectively speaking, economic recovery in April and May was much better than market forecasts, and was probably beyond policy expectations,” she said.

Gross domestic product (GDP) shrank 6.8 percent in the first quarter year-on-year, the worst quarterly contraction on record, as the pandemic and tough containment measures paralyzed activity across the country.

China has lowered the LPR twice this year, while also delivering other easing measures to restore growth.

Some analysts expect more aggressive monetary and fiscal stimulus could be rolled out soon to help companies and consumers, possibly at China’s annual National People’s Congress (NPC) session starting on May 22.

The LPR is a lending reference rate set monthly by 18 banks.